512 viewsBy Isaiah Ajala, Licensed Real Estate Salesperson
I was in the barber shop yesterday, and like any other day, my barber asked the inevitable question, “How's the market?” and as usual, I responded, “it's good, life is good." However, unlike any other day I’m in the seat, my barber proceeded to say, “how are people still buying real
estate with interest rates so high? Surely, its better to wait for interest rates to drop before anyone even thinks about buying real estate."
I can understand the logic in waiting for interest rates to drop before buying real-estate, however, in reality I believe buyers may be doing themselves a disservice by waiting to buy. While a reduction in interest rates will be great for real estate and the greater economy, there are a number of ways to navigate this market as a buyer and structure deals to benefit your wallet.
Below are a few ways you can leverage your buying power in in this high-interest-rate market:
1. Buy and wait
With interest rates at an all-time high, house prices have reduced. However, the number of days properties are on the market has increased. With that in mind, buyer should leverage this position and seek better deals. Waiting for interest rates to drop before entering the market will mean you will be entering the market as prices are rising. Although rates are high, buying now when prices are on the decline will mean you’ll have the ability to refinance and enter a lower rate with low principal payments when interest rates drop making your monthly payments lower.
2. Purchase CEMA
Purchase a Consolidation, Extension & Modification agreement (CEMA), which is a legal document used in real estate transactions mainly in New York State. A Purchase CEMA allows buyers of a property to assume the sellers existing mortgage while modifying its terms. The agreement consolidates the existing mortgage with the new loan amount and extends the terms of the loan. This can be beneficial for buyers because it can save them money on closing costs, as they won’t need to obtain a new mortgage.
3. Seller's Financing
Also known as owner financing, is a real estate transaction in which the seller of the property provides financing to the buyer instead of the buyer obtaining a mortgage from a traditional lender, such as a bank. Exploring this avenue allows sellers to act as the lender and the buyer makes payments to the seller directly. The terms of the sellers financing is negotiated between the seller and buyer, typically the seller will use the property as collateral for the loan and may require a down payment with monthly payments or a balloon payment at the end of tthe agreed period. Seller financing can provide an alternative to traditional lending and offer the buyer an opportunity to negate high interest payments by negotiating lower interest payments with the seller.
4. Seller's Concession
This is an arrangement in the real estate transaction where the seller agrees to pay for some or all of the buyer closing cost. The amount of the
sellers concession is typically a percentage of the sale price of the property and is negotiated between the buyer & sellers counsel during the purchase contract negotiation process. The concession can be used to cover a variety of costs, such as title insurance, appraisal fees, and attorney fees. Seller's Concession can be beneficial to the buyer as it reduces the upfront costs associated with purchasing a house.
5. Mortgage Points
Also known as discount points, mortgage points are fees paid to the lender at closing in exchange for a lower interest rate on a mortgage. Paying down mortgage points means paying an additional amount of money at closing in order to reduce the interest rates on your mortgage. The more points you pay, the lower your interest will be. Paying down mortgage points can be beneficial for buyers who plan to stay in
their homes for a long period of time, as the savings from the lower interest rates will eventually exceed the upfront costs of the points.
Buying real estate can be a complex and daunting experience, particularly if its your first time in the rodeo. Current high interest rates add another layer of complexities to this process, leading many would-be buyers to wait on the sidelines in anticipation for rates to drop. Personally, I feel like now is an ideal time to buy your home, if you can still afford monthly payments. Using the strategies listed above can help you go a long way in finding the right property with the right terms and price. If you are exploring the option of purchasing real estate using the strategies above, I’d encourage you to speak with your real estate broker and/or attorney about executing these strategies to ensure the terms of the transaction are adequately observed.